MILWAUKEE, Jan. 18, 2018 /PRNewswire/ -- MGIC
Investment Corporation (NYSE: MTG) today reported operating and
financial results for the fourth quarter ended December 31,
2017. Net income for the quarter was $27.3
million, or $0.07 per diluted
share, compared with net income of $107.5
million, or $0.28 per diluted
share for the fourth quarter of 2016. Net income for the full year
2017 was $355.8 million or
$0.95 per diluted share compared with
net income of $342.5 million or
$0.86 per diluted share for the full
year 2016.
The tax reform enacted in the fourth quarter of 2017 resulted in
a reduction of approximately $133
million in our net income for the fourth quarter and full
year 2017 due to the remeasurement of our net deferred tax assets
to reflect lower enacted corporate tax rates. The impact of this
remeasurement was a reduction of $0.36 per diluted share in the fourth quarter and
a reduction of $0.34 per diluted
share for the full year 2017.
Adjusted net operating income for the fourth quarter 2017 was
$160.7 million, or $0.43 per diluted share, compared with
$107.7 million, or $0.28 per diluted share for the fourth quarter of
2016. Adjusted net operating income for the full year ended
December 31, 2017 was $517.7
million, or $1.36 per diluted
share, compared with $396.3 million,
or $0.99 per diluted share for full
year 2016. We present the non-GAAP financial measure "Adjusted net
operating income" to increase the comparability between periods of
our financial results. See "Use of Non-GAAP Financial Measures"
below.
Fourth Quarter Summary
- New Insurance Written of $12.8
billion was unchanged from the fourth quarter of 2016.
- Insurance in force of $194.9
billion at December 31, 2017
increased by 2.0% during the quarter and 7.1% year-to-date.
- Primary delinquent inventory(1) of 46,556 at
December 31, 2017 increased from
41,235 at September 30, 2017, driven
by new notice activity from areas affected by major 2017
hurricanes. Our primary delinquent inventory declined 7.4%
year-to-date from 50,282 at December 31,
2016.
-
- As of December 31, 2017, the
primary delinquent inventory includes 12,446 from the hurricane
impacted areas compared to 7,162 as of December 31, 2016.
- The percentage of loans that were delinquent, excluding bulk
loans, was 3.70% at December 31, 2017
compared to 4.05% at December 31,
2016, and 5.11% at December 31,
2015. Including bulk loans, the percentage of loans that
were delinquent at December 31, 2017
was 4.55%, compared to 5.04% at December 31,
2016, and 6.31% at December 31,
2015.
- Persistency, or the percentage of insurance remaining in force
from one year prior, was 80.1% at December
31, 2017 compared with 78.8% at September 30, 2017 and 76.9% at December 31, 2016.
- The loss ratio for the fourth quarter of 2017 was (13.1%)
compared to 12.5% for the third quarter of 2017 and 20.3% for the
fourth quarter of 2016. The loss ratios for these periods were each
impacted by positive development on our primary loss reserves.
- The underwriting expense ratio(2) for the fourth
quarter of 2017 was 15.9% compared to 15.7% for the third quarter
of 2017 and 15.8% for the fourth quarter of 2016.
- Book value per common share increased by 0.7% during the
quarter and 13.8% year-to-date to $8.51(3).
(1) # of loans,
(2) insurance operations, (3) based on shares
outstanding
Patrick Sinks, CEO of MTG and
Mortgage Guaranty Insurance Corporation ("MGIC") said, "I am
pleased to report that in 2017 we achieved another year of strong
financial results and continued to position our company for further
success. Specifically, our insurance in force increased as we added
$49 billion of high quality new
insurance and persistency increased, the credit characteristics and
performance of the new business written beginning in 2009 remain
excellent, the legacy book continued to decline and contributed
fewer delinquencies, and we maintained our traditionally low
expense ratio." Sinks continued, "In 2017 we retired our 2017
Senior Notes and converted the 2020 Convertible Senior Notes which
improved our debt ratios, received ratings upgrades from Moody's
and Standard and Poor's, and increased dividends to our holding
company to $140 million from
$64 million last year."
Sinks added, "Reflecting the current trends in the origination
market we expect to write slightly more new insurance in 2018
compared to 2017 and expect that our insurance in force will
continue to grow. Further we anticipate that the number of new
mortgage delinquency notices, claims paid and delinquency inventory
will continue to decline. We will continue to focus on capital
management activities and maintaining our industry leading expense
ratio. We are well positioned to provide credit enhancement and low
down payment solutions to lenders, GSEs and borrowers, now, and in
the future."
Revenues
Total revenues for the fourth quarter of 2017 were $271.5 million, compared to $266.5 million in the fourth quarter last year.
Net premiums written for the quarter were $259.5 million, compared to $243.5 million for the same period last year. Net
premiums earned were $237.4 million
compared to $235.1 million for the
same period last year as a result of an increase in insurance in
force offset by a lower effective premium yield. Investment income
for the fourth quarter was $31.3
million, compared to $28.1
million for the same period last year.
Losses and expenses
Losses incurred
Losses incurred in the fourth quarter of 2017 were $(31.0) million, compared to $47.7 million in the fourth quarter of
2016. During the fourth quarter of 2017 there was a
$103 million reduction in losses
incurred due to positive development on our primary loss reserves
for previously received delinquencies, due primarily to a lower
estimated claim rate, compared to a reduction of $43 million in the fourth quarter of 2016. Losses
incurred in the quarter associated with delinquent notices received
in the quarter reflect a lower claim rate when compared to the same
quarter last year, especially on loans in hurricane impacted areas
as we do not expect a material increase in claims from these
notices.
Underwriting and other expenses
Net underwriting and other expenses were $43.8 million in the fourth quarter of 2017,
compared to $40.6 million reported
for the same period last year. Interest expense was $13.3 million in the fourth quarter of
2017, compared to $16.2 million
reported for the same period last year. The decrease was a result
of the retirement of the 5% Senior Notes and conversion of the 2%
Convertible Senior Notes.
Provision for income taxes
The effective income tax rate for the year ended 2017 increased
to 54.7% from 33.5% for the year ended 2016 due to the
remeasurement of our net deferred tax assets to reflect lower
enacted corporate tax rates and the additional provision related to
our expected IRS settlement. We expect our tax rate in 2018 to be
marginally less than the 21% federal statutory rate.
Capital
- As of December 31, 2017 total
shareholders' equity was $3.15
billion and outstanding principal on borrowings was
$837 million.
- MGIC paid a dividend of $50
million to our holding company during the fourth quarter of
2017.
- Consolidated Risk-to-Capital was 10.5:1(4) as of
December 31, 2017 compared to 12.0:1
as of December 31, 2016.
- MGIC's PMIERs Available Assets totaled $4.8 billion, or $0.8
billion above its Minimum Required Assets as of December 31, 2017.
(4) preliminary as
of December 31, 2017
Other Balance Sheet and Liquidity
Metrics
- Total assets were $5.62 billion
as of December 31, 2017, compared to
$5.73 billion as of December 31, 2016, and $5.87 billion as of December 31, 2015.
- The fair value of our investment portfolio, cash and cash
equivalents was $5.1 billion as of
December 31, 2017 compared to
$4.8 billion as of December 31, 2016, and $4.8 billion as of December 31, 2015.
- Investments, cash and cash equivalents at the holding company
were $216 million as of December 31, 2017 compared with $182 million as of September 30, 2017 and $283 million as of December 31, 2016.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call today,
January 18, 2018, at 10 a.m. ET
to allow securities analysts and shareholders the opportunity to
hear management discuss the company's quarterly results. The
conference call number is 1-844-231-8825. The call is being webcast
and can be accessed at the company's website at
http://mtg.mgic.com/. A replay of the webcast will be available on
the company's website through February 18,
2018 under "Newsroom."
About MGIC
MGIC (www.mgic.com), the principal subsidiary of MGIC Investment
Corporation, serves lenders throughout the United States, Puerto Rico, and other locations helping
families achieve homeownership sooner by making affordable
low-down-payment mortgages a reality. At December 31, 2017,
MGIC had $194.9 billion of primary
insurance in force covering approximately one million
mortgages.
This press release, which includes certain additional
statistical and other information, including non-GAAP financial
information, and a supplement that contains various portfolio
statistics are both available on the Company's website at
https://mtg.mgic.com/ under "Newsroom."
From time to time MGIC Investment Corporation releases important
information via postings on its corporate website without making
any other disclosure and intends to continue to do so in the
future. Investors and other interested parties are encouraged to
enroll to receive automatic email alerts and Really Simple
Syndication (RSS) feeds regarding new postings. Enrollment
information can be found at https://mtg.mgic.com under
"Newsroom."
Safe Harbor Statement
Forward Looking Statements and Risk Factors:
Our actual results could be affected by the risk factors below.
These risk factors should be reviewed in connection with this press
release and our periodic reports to the Securities and Exchange
Commission ("SEC"). These risk factors may also cause actual
results to differ materially from the results contemplated by
forward looking statements that we may make. Forward looking
statements consist of statements which relate to matters other than
historical fact, including matters that inherently refer to future
events. Among others, statements that include words such as
"believe," "anticipate," "will" or "expect," or words of similar
import, are forward looking statements. We are not undertaking any
obligation to update any forward looking statements or other
statements we may make even though these statements may be affected
by events or circumstances occurring after the forward looking
statements or other statements were made. No investor should rely
on the fact that such statements are current at any time other than
the time at which this press release was issued.
In addition, the current period financial results included in
this press release may be affected by additional information that
arises prior to the filing of our Form 10-K for the year ended
December 31, 2017.
While we communicate with security analysts from time to time,
it is against our policy to disclose to them any material
non-public information or other confidential information.
Accordingly, investors should not assume that we agree with any
statement or report issued by any analyst irrespective of the
content of the statement or report, and such reports are not our
responsibility.
Use of Non-GAAP Financial Measures
We believe that use of the Non-GAAP measures of adjusted pre-tax
operating income (loss), adjusted net operating income (loss) and
adjusted net operating income (loss) per diluted share facilitate
the evaluation of the company's core financial performance thereby
providing relevant information to investors. These measures are not
recognized in accordance with accounting principles generally
accepted in the United States of
America (GAAP) and should not be viewed as alternatives to
GAAP measures of performance. The measures described below have
been established to increase transparency for the purpose of
evaluating our fundamental operating trends.
Adjusted pre-tax operating income (loss) is defined as
GAAP income (loss) before tax, excluding the effects of net
realized investment gains (losses), gain (loss) on debt
extinguishment, net impairment losses recognized in income (loss)
and infrequent or unusual non-operating items where applicable.
Adjusted net operating income (loss) is defined as GAAP
net income (loss) excluding the after-tax effects of net realized
investment gains (losses), gain (loss) on debt extinguishment, net
impairment losses recognized in income (loss), and infrequent or
unusual non-operating items where applicable. The amounts of
adjustments to components of pre-tax operating income (loss) are
tax effected using a federal statutory tax rate of 35%.
Adjusted net operating income (loss) per diluted share is
calculated in a manner consistent with the accounting standard
regarding earnings per share by dividing (i) adjusted net operating
income (loss) after making adjustments for interest expense
on convertible debt, whenever the impact is dilutive, by (ii)
diluted weighted average common shares outstanding, which reflects
share dilution from unvested restricted stock units and from
convertible debt when dilutive under the "if-converted" method.
Although adjusted pre-tax operating income (loss) and adjusted
net operating income (loss) exclude certain items that have
occurred in the past and are expected to occur in the future, the
excluded items represent items that are: (1) not viewed as part of
the operating performance of our primary activities; or (2)
impacted by both discretionary and other economic or regulatory
factors and are not necessarily indicative of operating trends, or
both. These adjustments, along with the reasons for their
treatment, are described below. Trends in the profitability of our
fundamental operating activities can be more clearly identified
without the fluctuations of these adjustments. Other companies may
calculate these measures differently. Therefore, their measures may
not be comparable to those used by us.
(1)
|
Net realized
investment gains (losses). The recognition of net realized
investment gains or losses can vary significantly across periods as
the timing of individual securities sales is highly discretionary
and is influenced by such factors as market opportunities, our tax
and capital profile, and overall market cycles.
|
|
|
(2)
|
Gains and losses
on debt extinguishment. Gains and losses on debt extinguishment
result from discretionary activities that are undertaken to enhance
our capital position, improve our debt profile, and/or reduce
potential dilution from our outstanding convertible
debt.
|
|
|
(3)
|
Net impairment
losses recognized in earnings. The recognition of net
impairment losses on investments can vary significantly in both
size and timing, depending on market credit cycles, individual
issuer performance, and general economic conditions.
|
|
|
(4)
|
Infrequent or
unusual non-operating items. Our income tax expense for 2017
reflects a reduction in our net deferred tax asset due to the rate
decrease included in the tax reform enacted in the fourth quarter
of 2017 (the "Tax Act"). Our income tax expense also includes
amounts related to our IRS dispute and is related to past
transactions which are non-recurring in nature and are not part of
our primary operating activities.
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended December
31,
|
(In thousands,
except per share data)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Net premiums
written
|
|
$
|
259,523
|
|
|
$
|
243,471
|
|
|
$
|
997,955
|
|
|
$
|
975,091
|
|
Revenues
|
|
|
|
|
|
|
|
|
Net premiums
earned
|
|
$
|
237,425
|
|
|
$
|
235,053
|
|
|
$
|
934,747
|
|
|
$
|
925,226
|
|
Net investment
income
|
|
31,276
|
|
|
28,094
|
|
|
120,871
|
|
|
110,666
|
|
Net realized
investment gains (losses)
|
|
460
|
|
|
(52)
|
|
|
249
|
|
|
8,932
|
|
Other
revenue
|
|
2,341
|
|
|
3,425
|
|
|
10,187
|
|
|
17,659
|
|
Total
revenues
|
|
271,502
|
|
|
266,520
|
|
|
1,066,054
|
|
|
1,062,483
|
|
Losses and
expenses
|
|
|
|
|
|
|
|
|
Losses incurred,
net
|
|
(30,996)
|
|
|
47,658
|
|
|
53,709
|
|
|
240,157
|
|
Underwriting and
other expenses, net
|
|
43,786
|
|
|
40,633
|
|
|
170,749
|
|
|
160,409
|
|
Interest
expense
|
|
13,256
|
|
|
16,191
|
|
|
57,035
|
|
|
56,672
|
|
Loss on debt
extinguishment
|
|
—
|
|
|
—
|
|
|
65
|
|
|
90,531
|
|
Total losses and
expenses
|
|
26,046
|
|
|
104,482
|
|
|
281,558
|
|
|
547,769
|
|
Income before
tax
|
|
245,456
|
|
|
162,038
|
|
|
784,496
|
|
|
514,714
|
|
Provision for income
taxes
|
|
218,142
|
|
|
54,551
|
|
|
428,735
|
|
|
172,197
|
|
Net income
|
|
$
|
27,314
|
|
|
$
|
107,487
|
|
|
$
|
355,761
|
|
|
$
|
342,517
|
|
Net income per
diluted share
|
|
$
|
0.07
|
|
|
$
|
0.28
|
|
|
$
|
0.95
|
|
|
$
|
0.86
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
EARNINGS PER SHARE
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
December 31,
|
|
Year Ended December
31,
|
(In thousands,
except per share data)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Net income
|
|
$
|
27,314
|
|
|
$
|
107,487
|
|
|
$
|
355,761
|
|
|
$
|
342,517
|
|
Interest expense, net
of tax:
|
|
|
|
|
|
|
|
|
2% Convertible Senior
Notes due 2020
|
|
—
|
|
|
823
|
|
|
907
|
|
|
6,111
|
|
5% Convertible Senior
Notes due 2017
|
|
—
|
|
|
1,282
|
|
|
1,709
|
|
|
6,362
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
—
|
|
|
3,757
|
|
|
15,027
|
|
|
15,893
|
|
Diluted net income
available to common shareholders
|
|
$
|
27,314
|
|
|
$
|
113,349
|
|
|
$
|
373,404
|
|
|
$
|
370,883
|
|
|
|
|
|
|
|
|
|
|
Weighted average
shares - basic
|
|
370,591
|
|
|
341,361
|
|
|
362,380
|
|
|
342,890
|
|
Effect of dilutive
securities:
|
|
|
|
|
|
|
|
|
Unvested restricted
stock units
|
|
1,871
|
|
|
1,596
|
|
|
1,493
|
|
|
1,470
|
|
2% Convertible Senior
Notes due 2020
|
|
—
|
|
|
29,859
|
|
|
8,317
|
|
|
54,450
|
|
5% Convertible Senior
Notes due 2017
|
|
—
|
|
|
10,791
|
|
|
3,548
|
|
|
13,107
|
|
9% Convertible Junior
Subordinated Debentures due 2063
|
|
—
|
|
|
19,028
|
|
|
19,028
|
|
|
20,075
|
|
Weighted average
shares - diluted
|
|
372,462
|
|
|
402,635
|
|
|
394,766
|
|
|
431,992
|
|
Net income per
diluted share
|
|
$
|
0.07
|
|
|
$
|
0.28
|
|
|
$
|
0.95
|
|
|
$
|
0.86
|
|
NON-GAAP
RECONCILIATIONS
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
|
Three Months Ended
December 31,
|
|
|
2017
|
|
2016
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax
provision
(benefit)
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax
provision
(benefit)
|
|
Net
(after-tax)
|
Income before tax /
Net income
|
|
$
|
245,456
|
|
|
$
|
218,142
|
|
|
$
|
27,314
|
|
|
$
|
162,038
|
|
|
$
|
54,551
|
|
|
$
|
107,487
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional income tax
provision related to the rate decrease included in the Tax
Act
|
|
—
|
|
|
(132,999)
|
|
|
132,999
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Additional income tax
provision related to IRS litigation
|
|
—
|
|
|
(637)
|
|
|
637
|
|
|
—
|
|
|
(196)
|
|
|
196
|
|
Net realized
investment (gains) losses
|
|
(460)
|
|
|
(161)
|
|
|
(299)
|
|
|
52
|
|
|
18
|
|
|
34
|
|
Loss on debt
extinguishment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
|
244,996
|
|
|
$
|
84,345
|
|
|
$
|
160,651
|
|
|
$
|
162,090
|
|
|
$
|
54,373
|
|
|
$
|
107,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
|
Weighted average
shares - diluted
|
|
|
|
|
|
372,462
|
|
|
|
|
|
|
402,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
|
|
|
|
$
|
0.07
|
|
|
|
|
|
|
$
|
0.28
|
|
Additional income tax
provision related to the rate decrease included in the Tax
Act
|
|
|
|
|
|
0.36
|
|
|
|
|
|
|
—
|
|
Additional income tax
provision related to IRS litigation
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Net realized
investment (gains) losses
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Loss on debt
extinguishment
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
Adjusted net
operating income per diluted share
|
|
|
|
|
|
$
|
0.43
|
|
|
|
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Income before tax / Net income to Adjusted pre-tax operating income
/ Adjusted net operating income
|
|
|
|
Year Ended
December 31,
|
|
|
2017
|
|
2016
|
(In thousands,
except per share amounts)
|
|
Pre-tax
|
|
Tax
provision
(benefit)
|
|
Net
(after-tax)
|
|
Pre-tax
|
|
Tax
provision
(benefit)
|
|
Net
(after-tax)
|
Income before tax /
Net income
|
|
$
|
784,496
|
|
|
$
|
428,735
|
|
|
$
|
355,761
|
|
|
$
|
514,714
|
|
|
$
|
172,197
|
|
|
$
|
342,517
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional income tax
provision related to the rate decrease included in the Tax
Act
|
|
—
|
|
|
(132,999)
|
|
|
132,999
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Additional income tax
provision related to IRS litigation
|
|
—
|
|
|
(29,039)
|
|
|
29,039
|
|
|
—
|
|
|
(731)
|
|
|
731
|
|
Net realized
investment gains
|
|
(249)
|
|
|
(87)
|
|
|
(162)
|
|
|
(8,932)
|
|
|
(3,126)
|
|
|
(5,806)
|
|
Loss on debt
extinguishment
|
|
65
|
|
|
23
|
|
|
42
|
|
|
90,531
|
|
|
31,686
|
|
|
58,845
|
|
Adjusted pre-tax
operating income / Adjusted net operating income
|
|
$
|
784,312
|
|
|
$
|
266,633
|
|
|
$
|
517,679
|
|
|
$
|
596,313
|
|
|
$
|
200,026
|
|
|
$
|
396,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of
Net income per diluted share to Adjusted net operating income per
diluted share
|
|
Weighted average
shares - diluted
|
|
|
|
|
|
394,766
|
|
|
|
|
|
|
431,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per
diluted share
|
|
|
|
|
|
$
|
0.95
|
|
|
|
|
|
|
$
|
0.86
|
|
Additional income tax
provision related to the rate decrease included in the Tax
Act
|
|
|
|
|
|
0.34
|
|
|
|
|
|
|
—
|
|
Additional income tax
provision related to IRS litigation
|
|
|
|
|
|
0.07
|
|
|
|
|
|
|
—
|
|
Net realized
investment gains
|
|
|
|
|
|
—
|
|
|
|
|
|
|
(0.01)
|
|
Loss on debt
extinguishment
|
|
|
|
|
|
—
|
|
|
|
|
|
|
0.14
|
|
Adjusted net
operating income per diluted share
|
|
|
|
|
|
$
|
1.36
|
|
|
|
|
|
|
$
|
0.99
|
|
MGIC INVESTMENT
CORPORATION AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
December
31,
|
|
December
31,
|
|
December
31,
|
(In thousands,
except per share data)
|
2017
|
|
2016
|
|
2015
|
ASSETS
|
|
|
|
|
|
|
Investments
(1)
|
|
$
|
4,990,561
|
|
|
$
|
4,692,350
|
|
|
$
|
4,663,206
|
|
Cash and cash
equivalents
|
|
99,851
|
|
|
155,410
|
|
|
181,120
|
|
Reinsurance
recoverable on loss reserves (2)
|
|
48,474
|
|
|
50,493
|
|
|
44,487
|
|
Home office and
equipment, net
|
|
44,936
|
|
|
36,088
|
|
|
30,095
|
|
Deferred insurance
policy acquisition costs
|
|
18,841
|
|
|
17,759
|
|
|
15,241
|
|
Deferred income
taxes, net
|
|
234,381
|
|
|
607,655
|
|
|
762,080
|
|
Other
assets
|
|
182,455
|
|
|
174,774
|
|
|
172,114
|
|
Total assets
|
|
$
|
5,619,499
|
|
|
$
|
5,734,529
|
|
|
$
|
5,868,343
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Loss reserves
(2)
|
|
$
|
985,635
|
|
|
$
|
1,438,813
|
|
|
$
|
1,893,402
|
|
Unearned
premiums
|
|
392,934
|
|
|
329,737
|
|
|
279,973
|
|
Federal home loan bank
advance
|
|
155,000
|
|
|
155,000
|
|
|
—
|
|
Senior notes
|
|
418,560
|
|
|
417,406
|
|
|
—
|
|
Convertible senior
notes
|
|
—
|
|
|
349,461
|
|
|
822,301
|
|
Convertible junior
debentures
|
|
256,872
|
|
|
256,872
|
|
|
389,522
|
|
Other
liabilities
|
|
255,972
|
|
|
238,398
|
|
|
247,005
|
|
Total
liabilities
|
|
2,464,973
|
|
|
3,185,687
|
|
|
3,632,203
|
|
Shareholders'
equity
|
|
3,154,526
|
|
|
2,548,842
|
|
|
2,236,140
|
|
Total liabilities and
shareholders' equity
|
|
$
|
5,619,499
|
|
|
$
|
5,734,529
|
|
|
$
|
5,868,343
|
|
Book value per share
(3)
|
|
$
|
8.51
|
|
|
$
|
7.48
|
|
|
$
|
6.58
|
|
|
|
|
|
|
|
|
(1)
Investments include net unrealized gains (losses) on
securities
|
|
$
|
37,058
|
|
|
$
|
(32,006)
|
|
|
$
|
(26,567)
|
|
(2) Loss
reserves, net of reinsurance recoverable on loss
reserves
|
|
$
|
937,161
|
|
|
$
|
1,388,320
|
|
|
$
|
1,848,915
|
|
(3) Shares
outstanding
|
|
370,567
|
|
|
340,663
|
|
|
339,657
|
|
Additional
Information
|
|
Q4
2017
|
|
Q3
2017
|
|
Q2
2017
|
|
Q1
2017
|
|
Q4
2016
|
|
Q3
2016
|
|
New primary insurance
written (NIW) (billions)
|
$
|
12.8
|
|
|
$
|
14.1
|
|
|
$
|
12.9
|
|
|
$
|
9.3
|
|
|
$
|
12.8
|
|
|
$
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly premium plans
(1)
|
10.1
|
|
|
11.4
|
|
|
10.6
|
|
|
7.8
|
|
|
10.6
|
|
|
11.7
|
|
|
Single premium
plans
|
2.7
|
|
|
2.7
|
|
|
2.3
|
|
|
1.5
|
|
|
2.2
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct average
premium rate (bps) on NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
(1)
|
65.2
|
|
|
65.3
|
|
|
63.5
|
|
|
60.8
|
|
|
57.5
|
|
|
58.3
|
|
|
Singles
|
170.5
|
|
|
176.8
|
|
|
177.4
|
|
|
172.2
|
|
|
163.0
|
|
|
167.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New primary risk
written (billions)
|
$
|
3.2
|
|
|
$
|
3.5
|
|
|
$
|
3.2
|
|
|
$
|
2.3
|
|
|
$
|
3.1
|
|
|
$
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product mix as a % of
primary flow NIW
|
|
|
|
|
|
|
|
|
|
|
|
|
>95%
LTVs
|
13
|
%
|
|
12
|
%
|
|
10
|
%
|
|
8
|
%
|
|
7
|
%
|
|
6
|
%
|
|
Singles
|
21
|
%
|
|
20
|
%
|
|
18
|
%
|
|
17
|
%
|
|
17
|
%
|
|
18
|
%
|
|
Refinances
|
13
|
%
|
|
9
|
%
|
|
9
|
%
|
|
17
|
%
|
|
24
|
%
|
|
19
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Insurance In
Force (IIF) (billions)
|
$
|
194.9
|
|
|
$
|
191.0
|
|
|
$
|
187.3
|
|
|
$
|
183.5
|
|
|
$
|
182.0
|
|
|
$
|
180.1
|
|
|
Flow only
|
$
|
186.9
|
|
|
$
|
182.7
|
|
|
$
|
178.6
|
|
|
$
|
174.5
|
|
|
$
|
172.8
|
|
|
$
|
170.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Persistency
|
80.1
|
%
|
|
78.8
|
%
|
|
77.8
|
%
|
|
76.9
|
%
|
|
76.9
|
%
|
|
78.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk In Force
(RIF) (billions)
|
$
|
50.3
|
|
|
$
|
49.4
|
|
|
$
|
48.5
|
|
|
$
|
47.5
|
|
|
$
|
47.2
|
|
|
$
|
46.8
|
|
|
Flow only
|
$
|
48.1
|
|
|
$
|
47.0
|
|
|
$
|
46.0
|
|
|
$
|
45.0
|
|
|
$
|
44.6
|
|
|
$
|
44.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Primary RIF by
FICO (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
FICO 740 &
>
|
52
|
%
|
|
51
|
%
|
|
50
|
%
|
|
50
|
%
|
|
49
|
%
|
|
49
|
%
|
|
FICO
700-739
|
25
|
%
|
|
25
|
%
|
|
25
|
%
|
|
24
|
%
|
|
25
|
%
|
|
24
|
%
|
|
FICO
660-699
|
14
|
%
|
|
14
|
%
|
|
15
|
%
|
|
15
|
%
|
|
15
|
%
|
|
15
|
%
|
|
FICO 659 &
<
|
9
|
%
|
|
10
|
%
|
|
10
|
%
|
|
11
|
%
|
|
11
|
%
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Coverage
Ratio (RIF/IIF)
|
25.8
|
%
|
|
25.9
|
%
|
|
25.9
|
%
|
|
25.9
|
%
|
|
25.9
|
%
|
|
26.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Loan Size of
IIF (thousands)
|
$
|
190.38
|
|
|
$
|
188.36
|
|
|
$
|
186.09
|
|
|
$
|
183.91
|
|
|
$
|
182.35
|
|
|
$
|
180.71
|
|
|
Flow only
|
$
|
192.99
|
|
|
$
|
190.94
|
|
|
$
|
188.70
|
|
|
$
|
186.52
|
|
|
$
|
184.90
|
|
|
$
|
183.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - # of
loans
|
1,023,951
|
|
|
1,014,092
|
|
|
1,006,392
|
|
|
997,650
|
|
|
998,294
|
|
|
996,816
|
|
|
Flow only
|
968,649
|
|
|
956,772
|
|
|
946,435
|
|
|
935,470
|
|
|
934,350
|
|
|
931,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF -
Delinquent Roll Forward - # of Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Delinquent
Inventory
|
41,235
|
|
|
41,317
|
|
|
45,349
|
|
|
50,282
|
|
|
51,433
|
|
|
52,558
|
|
|
New
Notices
|
22,916
|
|
|
15,950
|
|
|
14,463
|
|
|
14,939
|
|
|
17,016
|
|
|
17,607
|
|
|
Cures
|
(15,712)
|
|
|
(13,546)
|
|
|
(14,708)
|
|
|
(17,128)
|
|
|
(15,267)
|
|
|
(15,556)
|
|
|
Paids (including
those charged to a deductible or captive)
|
(1,803)
|
|
|
(2,195)
|
|
|
(2,573)
|
|
|
(2,635)
|
|
|
(2,748)
|
|
|
(3,051)
|
|
|
Rescissions and
denials
|
(80)
|
|
|
(82)
|
|
|
(100)
|
|
|
(95)
|
|
|
(152)
|
|
|
(125)
|
|
|
Items removed from
inventory
|
—
|
|
|
(209)
|
|
|
(1,114)
|
|
|
(14)
|
|
|
—
|
|
|
—
|
|
|
Ending Delinquent
Inventory
|
46,556
|
|
|
41,235
|
|
|
41,317
|
|
|
45,349
|
|
|
50,282
|
|
|
51,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary claim
received inventory included in ending delinquent
inventory
|
954
|
|
|
1,063
|
|
|
1,258
|
|
|
1,390
|
|
|
1,385
|
|
|
1,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Cures
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported delinquent
and cured intraquarter
|
5,520
|
|
|
4,347
|
|
|
3,854
|
|
|
5,476
|
|
|
4,543
|
|
|
4,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent prior to cure
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
6,324
|
|
|
6,011
|
|
|
6,803
|
|
|
7,585
|
|
|
7,006
|
|
|
6,455
|
|
|
4-11
payments
|
2,758
|
|
|
2,374
|
|
|
2,964
|
|
|
3,036
|
|
|
2,580
|
|
|
2,786
|
|
|
12 payments or
more
|
1,110
|
|
|
814
|
|
|
1,087
|
|
|
1,031
|
|
|
1,138
|
|
|
1,329
|
|
|
Total Cures in
Quarter
|
15,712
|
|
|
13,546
|
|
|
14,708
|
|
|
17,128
|
|
|
15,267
|
|
|
15,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composition of
Paids
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent at time of claim payment
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
6
|
|
|
13
|
|
|
8
|
|
|
13
|
|
|
6
|
|
|
16
|
|
|
4-11
payments
|
181
|
|
|
222
|
|
|
279
|
|
|
306
|
|
|
273
|
|
|
325
|
|
|
12 payments or
more
|
1,616
|
|
|
1,960
|
|
|
2,286
|
|
|
2,316
|
|
|
2,469
|
|
|
2,710
|
|
|
Total Paids in
Quarter
|
1,803
|
|
|
2,195
|
|
|
2,573
|
|
|
2,635
|
|
|
2,748
|
|
|
3,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aging of Primary
Delinquent Inventory
|
|
|
|
|
|
|
|
|
|
|
|
|
Consecutive months
delinquent
|
|
|
|
|
|
|
|
|
|
|
|
|
3 months or
less
|
17,119
|
|
37
|
%
|
11,331
|
|
27
|
%
|
10,299
|
|
25
|
%
|
9,184
|
|
20
|
%
|
12,194
|
|
24
|
%
|
12,333
|
|
24
|
%
|
4-11 months
|
12,050
|
|
26
|
%
|
11,092
|
|
27
|
%
|
11,018
|
|
27
|
%
|
13,617
|
|
30
|
%
|
13,450
|
|
27
|
%
|
12,648
|
|
25
|
%
|
12 months or
more
|
17,387
|
|
37
|
%
|
18,812
|
|
46
|
%
|
20,000
|
|
48
|
%
|
22,548
|
|
50
|
%
|
24,638
|
|
49
|
%
|
26,452
|
|
51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of payments
delinquent
|
|
|
|
|
|
|
|
|
|
|
|
|
3 payments or
less
|
21,678
|
|
46
|
%
|
16,916
|
|
41
|
%
|
15,858
|
|
38
|
%
|
15,692
|
|
35
|
%
|
18,419
|
|
36
|
%
|
18,374
|
|
36
|
%
|
4-11
payments
|
12,446
|
|
27
|
%
|
10,583
|
|
26
|
%
|
10,560
|
|
26
|
%
|
12,275
|
|
27
|
%
|
12,892
|
|
26
|
%
|
12,282
|
|
24
|
%
|
12 payments or
more
|
12,432
|
|
27
|
%
|
13,736
|
|
33
|
%
|
14,899
|
|
36
|
%
|
17,382
|
|
38
|
%
|
18,971
|
|
38
|
%
|
20,777
|
|
40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF - # of
Delinquent Loans
|
46,556
|
|
|
41,235
|
|
|
41,317
|
|
|
45,349
|
|
|
50,282
|
|
|
51,433
|
|
|
Flow only
|
35,791
|
|
|
30,501
|
|
|
30,571
|
|
|
33,850
|
|
|
37,829
|
|
|
38,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary IIF
Delinquency Rates
|
4.55
|
%
|
|
4.07
|
%
|
|
4.11
|
%
|
|
4.55
|
%
|
|
5.04
|
%
|
|
5.16
|
%
|
|
Flow only
|
3.70
|
%
|
|
3.19
|
%
|
|
3.23
|
%
|
|
3.62
|
%
|
|
4.05
|
%
|
|
4.14
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Loss Reserves
(millions)
|
$
|
971
|
|
|
$
|
1,090
|
|
|
$
|
1,165
|
|
|
$
|
1,311
|
|
|
$
|
1,413
|
|
|
$
|
1,493
|
|
|
Average Direct Reserve
Per Delinquency
|
$
|
20,851
|
|
(2)
|
|
$
|
26,430
|
|
|
$
|
28,206
|
|
|
$
|
28,911
|
|
|
$
|
28,104
|
|
|
$
|
29,027
|
|
|
Pool
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct loss reserves
(millions)
|
$
|
14
|
|
|
$
|
15
|
|
|
$
|
21
|
|
|
$
|
23
|
|
|
$
|
25
|
|
|
$
|
32
|
|
|
Ending delinquent
inventory
|
1,309
|
|
|
1,426
|
|
|
1,511
|
|
|
1,714
|
|
|
1,883
|
|
|
1,979
|
|
|
Pool claim received
inventory included in ending delinquent inventory
|
42
|
|
|
42
|
|
|
63
|
|
|
64
|
|
|
72
|
|
|
87
|
|
|
Reserves related to
Freddie Mac settlement (millions)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
Other Gross Reserves
(millions)
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Paid Claims
(millions) (3)
|
$
|
91
|
|
|
$
|
113
|
|
|
$
|
173
|
|
|
$
|
128
|
|
|
$
|
149
|
|
|
$
|
161
|
|
|
Total primary
(excluding settlements)
|
89
|
|
|
101
|
|
|
126
|
|
|
130
|
|
|
133
|
|
|
147
|
|
|
Rescission and NPL
settlements
|
—
|
|
|
9
|
|
|
45
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
Pool - with aggregate
loss limits
|
1
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
Pool - without
aggregate loss limits
|
1
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
Pool - Freddie Mac
settlement
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
10
|
|
|
11
|
|
|
Reinsurance
|
(5)
|
|
|
(3)
|
|
|
(6)
|
|
|
(9)
|
|
|
(4)
|
|
|
(5)
|
|
|
Other
|
5
|
|
|
4
|
|
|
4
|
|
|
5
|
|
|
5
|
|
|
4
|
|
|
Reinsurance
terminations (3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3)
|
|
|
Primary Average Claim
Payment (thousands)
|
$
|
49.2
|
|
|
$
|
46.4
|
|
(4)
|
|
$
|
49.1
|
|
(4)
|
|
$
|
49.1
|
|
(4)
|
|
$
|
48.3
|
|
(4)
|
|
$
|
48.1
|
|
(4)
|
|
Flow only
|
$
|
45.1
|
|
|
$
|
43.7
|
|
(4)
|
|
$
|
45.0
|
|
(4)
|
|
$
|
45.2
|
|
(4)
|
|
$
|
44.0
|
|
(4)
|
|
$
|
44.8
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance excluding
captives
|
|
|
|
|
|
|
|
|
|
|
|
|
% insurance inforce
subject to reinsurance
|
78.2
|
%
|
|
78.3
|
%
|
|
77.6
|
%
|
|
76.8
|
%
|
|
76.3
|
%
|
|
75.3
|
%
|
|
% quarterly NIW
subject to reinsurance
|
77.0
|
%
|
|
86.1
|
%
|
|
88.2
|
%
|
|
85.9
|
%
|
|
89.3
|
%
|
|
88.4
|
%
|
|
Ceded premium written
and earned (millions)
|
$
|
32.3
|
|
|
$
|
30.9
|
|
|
$
|
28.9
|
|
|
$
|
28.9
|
|
|
$
|
32.1
|
|
|
$
|
31.7
|
|
|
Ceded losses incurred
(millions)
|
$
|
7.3
|
|
|
$
|
5.9
|
|
|
$
|
4.4
|
|
|
$
|
4.7
|
|
|
$
|
8.2
|
|
|
$
|
7.4
|
|
|
Ceding commissions
(millions) (included in underwriting and other expenses)
|
$
|
12.6
|
|
|
$
|
12.5
|
|
|
$
|
12.2
|
|
|
$
|
12.0
|
|
|
$
|
12.0
|
|
|
$
|
12.1
|
|
|
Profit commission
(millions) (included in ceded premiums)
|
$
|
30.6
|
|
|
$
|
31.6
|
|
|
$
|
32.3
|
|
|
$
|
31.1
|
|
|
$
|
27.7
|
|
|
$
|
29.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Pool RIF
(millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
With aggregate loss
limits
|
$
|
236
|
|
|
$
|
238
|
|
|
$
|
239
|
|
|
$
|
242
|
|
|
$
|
244
|
|
|
$
|
247
|
|
|
Without aggregate
loss limits
|
$
|
235
|
|
|
$
|
251
|
|
|
$
|
267
|
|
|
$
|
284
|
|
|
$
|
303
|
|
|
$
|
321
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bulk Primary
Insurance Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance in force
(billions)
|
$
|
8.0
|
|
|
$
|
8.3
|
|
|
$
|
8.7
|
|
|
$
|
9.0
|
|
|
$
|
9.2
|
|
|
$
|
9.6
|
|
|
Risk in force
(billions)
|
$
|
2.2
|
|
|
$
|
2.4
|
|
|
$
|
2.5
|
|
|
$
|
2.5
|
|
|
$
|
2.6
|
|
|
$
|
2.7
|
|
|
Average loan size
(thousands)
|
$
|
144.61
|
|
|
$
|
145.37
|
|
|
$
|
144.93
|
|
|
$
|
144.68
|
|
|
$
|
145.05
|
|
|
$
|
145.73
|
|
|
Number of delinquent
loans
|
10,765
|
|
|
10,734
|
|
|
10,746
|
|
|
11,499
|
|
|
12,453
|
|
|
12,881
|
|
|
Delinquency
rate
|
19.47
|
%
|
|
18.73
|
%
|
|
17.92
|
%
|
|
18.49
|
%
|
|
19.48
|
%
|
|
19.59
|
%
|
|
Primary paid claims
(millions)
|
$
|
25
|
|
|
$
|
26
|
|
|
$
|
31
|
|
|
$
|
33
|
|
|
$
|
35
|
|
(4)
|
|
$
|
37
|
|
(4)
|
|
Average claim payment
(thousands)
|
$
|
64.4
|
|
|
$
|
56.1
|
|
|
$
|
67.7
|
|
|
$
|
66.6
|
|
|
$
|
65.8
|
|
(4)
|
|
$
|
61.4
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty
Insurance Corporation - Risk to Capital
|
9.5:1
|
|
(5)
|
|
10.1:1
|
|
|
10.2:1
|
|
|
10.4:1
|
|
|
10.7:1
|
|
|
11.1:1
|
|
|
Combined Insurance
Companies - Risk to Capital
|
10.5:1
|
|
(5)
|
|
11.1:1
|
|
|
11.3:1
|
|
|
11.6:1
|
|
|
12.0:1
|
|
|
12.6:1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP loss
ratio
(insurance operations
only)
|
(13.1)
|
%
|
|
12.5
|
%
|
|
11.8
|
%
|
|
12.1
|
%
|
|
20.3
|
%
|
|
25.7
|
%
|
|
GAAP underwriting
expense ratio (insurance operations only)
|
15.9
|
%
|
|
15.7
|
%
|
|
15.6
|
%
|
|
17.0
|
%
|
|
15.8
|
%
|
|
14.7
|
%
|
|
|
Note: The FICO
credit score for a loan with multiple borrowers is the lowest of
the borrowers' "decision FICO scores." A borrower's "decision
FICO score" is determined as follows: if there are three FICO
scores available, the middle FICO score is used; if two FICO scores
are available, the lower of the two is used; if only one FICO score
is available, it is used.
|
|
|
Note: Average claim
paid may vary from period to period due to amounts associated with
mitigation efforts.
|
|
|
(1)
|
Includes loans with
annual and split payments
|
|
|
(2)
|
Excluding our
estimate of delinquencies resulting from hurricane activity and
their associated loss reserves, the average direct reserve per
delinquency was approximately $24,000.
|
|
|
(3)
|
Net paid claims, as
presented, does not include amounts received in conjunction with
terminations or commutations of reinsurance agreements.
|
|
|
(4)
|
Excludes amounts paid
in settlement disputes for claims paying practices and/or
commutations of non-performing loans
|
|
|
(5)
|
Preliminary
|
Risk Factors
As used below, "we," "our" and "us" refer to MGIC Investment
Corporation's consolidated operations or to MGIC Investment
Corporation, as the context requires, and "MGIC" refers to Mortgage
Guaranty Insurance Corporation.
Competition or changes in our relationships with our
customers could reduce our revenues, reduce our premium yields
and / or increase our losses.
Our private mortgage insurance competitors include:
- Arch Mortgage Insurance Company,
- Essent Guaranty, Inc.,
- Genworth Mortgage Insurance Corporation,
- National Mortgage Insurance Corporation, and
- Radian Guaranty Inc.
The private mortgage insurance industry is highly competitive
and is expected to remain so. We believe that we currently compete
with other private mortgage insurers based on pricing, underwriting
requirements, financial strength (including based on credit or
financial strength ratings), customer relationships, name
recognition, reputation, the strength of our management team and
field organization, the ancillary products and services provided to
lenders and the effective use of technology and innovation in the
delivery and servicing of our mortgage insurance products.
Much of the competition in the industry has centered on pricing
practices which, in the last few years included:
(i) reductions in standard filed rates on borrower-paid
policies, (ii) use by certain competitors of a spectrum of filed
rates to allow for formulaic, risk-based pricing (commonly referred
to as "black-box" pricing); and (iii) use of customized rates
(discounted from published rates). The willingness of mortgage
insurers to offer reduced pricing (through filed or customized
rates) has been met with an increased demand from various lenders
for reduced rate products. There can be no assurance that
pricing competition will not intensify further, which could result
in a decrease in our new insurance written and/or returns.
In 2016 and 2017, approximately 5% and 4%, respectively, of our
new insurance written was for loans for which one lender was the
original insured. Our relationships with our customers could be
adversely affected by a variety of factors, including if our
premium rates are higher than those of our competitors, our
underwriting requirements result in our declining to insure some of
the loans originated by our customers, or our insurance policy
rescissions and claim curtailments affect the customer.
Certain of our competitors have access to capital at a lower
cost of capital than we do (including, as a result of off-shore
reinsurance vehicles, which are also tax-advantaged). As a result,
they may be better positioned to compete outside of traditional
mortgage insurance, including if Fannie Mae and Freddie Mac (the
"GSEs") pursue alternative forms of credit enhancement. In
addition, because of their tax advantages, certain competitors may
be able to achieve higher after-tax rates of return on their NIW
compared to us, which could allow them to leverage reduced pricing
to gain market share.
Substantially all of our insurance written since 2008 has been
for loans purchased by the GSEs. The current private mortgage
insurer eligibility requirements ("PMIERs") of the GSEs require a
mortgage insurer to maintain a minimum amount of assets to support
its insured risk, as discussed in our risk factor titled "We may
not continue to meet the GSEs' private mortgage insurer eligibility
requirements and our returns may decrease as we are required to
maintain more capital in order to maintain our eligibility."
The PMIERs do not require an insurer to maintain minimum financial
strength ratings; however, our financial strength ratings can
affect us in the following ways:
- A downgrade in our financial strength ratings could result in
increased scrutiny of our financial condition by the GSEs and/or
our customers, potentially resulting in a decrease in the amount of
our new insurance written.
- Our ability to participate in the non-GSE mortgage market
(which has been limited since 2008, but may grow in the future),
could depend on our ability to maintain and improve our investment
grade ratings for our mortgage insurance subsidiaries. We could be
competitively disadvantaged with some market participants because
the financial strength ratings of our insurance subsidiaries are
lower than those of some competitors. MGIC's financial strength
rating from Moody's is Baa2 (with a stable outlook) and from
Standard & Poor's is BBB+ (with a stable outlook).
- Financial strength ratings may also play a greater role if the
GSEs no longer operate in their current capacities, for example,
due to legislative or regulatory action. In addition, although the
PMIERs do not require minimum financial strength ratings, the GSEs
consider financial strength ratings to be important when utilizing
forms of credit enhancement other than traditional mortgage
insurance, as discussed in our risk factor titled "The amount of
insurance we write could be adversely affected if lenders and
investors select alternatives to private mortgage
insurance."
If we are unable to compete effectively in the current or any
future markets as a result of the financial strength ratings
assigned to our insurance subsidiaries, our future new insurance
written could be negatively affected.
The amount of insurance we write could be adversely
affected if lenders and investors select alternatives to private
mortgage insurance.
Alternatives to private mortgage insurance include:
- lenders using FHA, VA and other government mortgage insurance
programs,
- investors using risk mitigation and credit risk transfer
techniques other than private mortgage insurance,
- lenders and other investors holding mortgages in portfolio and
self-insuring, and
- lenders originating mortgages using piggyback structures to
avoid private mortgage insurance, such as a first mortgage with an
80% loan-to-value ratio and a second mortgage with a 10%, 15% or
20% loan-to-value ratio (referred to as 80-10-10, 80-15-5 or 80-20
loans, respectively) rather than a first mortgage with a 90%, 95%
or 100% loan-to-value ratio that has private mortgage
insurance.
The GSEs (and other investors) have used alternative forms of
credit enhancement other than private mortgage insurance, such as
obtaining insurance from non-mortgage insurers, engaging in
credit-linked note transactions executed in the capital markets, or
using other forms of debt issuances or securitizations that
transfer credit risk directly to other investors; using other risk
mitigation techniques in conjunction with reduced levels of private
mortgage insurance coverage; or accepting credit risk without
credit enhancement. Although the alternative forms of credit
enhancement used by the GSEs in the past several years have not
displaced primary mortgage insurance, the forms continue to
evolve.
The FHA's share of the low down payment residential mortgages
that were subject to FHA, VA, USDA or primary private mortgage
insurance was an estimated 36.6% in the first nine months of 2017,
35.5% in 2016, and 39.3% in 2015. In the past ten years, the FHA's
share has been as low as 17.1% in 2007 and as high as 68.7% in
2009. Factors that influence the FHA's market share include
relative rates and fees, underwriting guidelines and loan limits of
the FHA, VA, private mortgage insurers and the GSEs; lenders'
perceptions of legal risks under FHA versus GSE programs;
flexibility for the FHA to establish new products as a result of
federal legislation and programs; returns expected to be obtained
by lenders for Ginnie Mae
securitization of FHA-insured loans compared to those obtained from
selling loans to Fannie Mae or Freddie Mac for securitization; and
differences in policy terms, such as the ability of a borrower to
cancel insurance coverage under certain circumstances. We cannot
predict how the factors that affect the FHA's share of new
insurance written will change in the future.
The VA's share of the low down payment residential mortgages
that were subject to FHA, VA, USDA or primary private mortgage
insurance was an estimated 23.8% in the first nine months of 2017,
26.6% in 2016, and 23.9% in 2015. In the past ten years, the VA's
share has been as low as 5.4% in 2007 and as high as 26.6% in 2016.
We believe that the VA's market share has generally been increasing
because the VA offers 100% LTV loans and charges a one-time funding
fee that can be included in the loan amount but no additional
monthly expense, and because of an increase in the number of
borrowers who are eligible for the VA's program.
Changes in the business practices of the GSEs, federal
legislation that changes their charters or a restructuring of the
GSEs could reduce our revenues or increase our losses.
The GSEs' charters generally require credit enhancement for a
low down payment mortgage loan (a loan amount that exceeds 80% of a
home's value) in order for such loan to be eligible for purchase by
the GSEs. Lenders generally have used private mortgage insurance to
satisfy this credit enhancement requirement and low down payment
mortgages purchased by the GSEs generally are insured with private
mortgage insurance. As a result, the business practices of the GSEs
greatly impact our business and include:
- private mortgage insurer eligibility requirements of the GSEs
(for information about the financial requirements included in the
PMIERs, see our risk factor titled "We may not continue to meet
the GSEs' private mortgage insurer eligibility requirements and our
returns may decrease as we are required to maintain more capital in
order to maintain our eligibility"),
- the level of private mortgage insurance coverage, subject to
the limitations of the GSEs' charters (which may be changed by
federal legislation), when private mortgage insurance is used as
the required credit enhancement on low down payment mortgages,
- the amount of loan level price adjustments and guaranty fees
(which result in higher costs to borrowers) that the GSEs assess on
loans that require private mortgage insurance,
- whether the GSEs influence the mortgage lender's selection of
the mortgage insurer providing coverage and, if so, any
transactions that are related to that selection,
- the underwriting standards that determine which loans are
eligible for purchase by the GSEs, which can affect the quality of
the risk insured by the mortgage insurer and the availability of
mortgage loans,
- the terms on which mortgage insurance coverage can be canceled
before reaching the cancellation thresholds established by
law,
- the programs established by the GSEs intended to avoid or
mitigate loss on insured mortgages and the circumstances in which
mortgage servicers must implement such programs,
- the terms that the GSEs require to be included in mortgage
insurance policies for loans that they purchase,
- the terms on which the GSEs offer lenders relief on their
representations and warranties made at the time of sale of a loan
to the GSEs, which creates pressure on mortgage insurers to limit
their rescission rights to conform to such relief, and the extent
to which the GSEs intervene in mortgage insurers' claims paying
practices, rescission practices or rescission settlement practices
with lenders, and
- the maximum loan limits of the GSEs in comparison to those of
the FHA and other investors.
The Federal Housing Finance Agency ("FHFA") has been the
conservator of the GSEs since 2008 and has the authority to control
and direct their operations. The increased role that the federal
government has assumed in the residential housing finance system
through the GSE conservatorship may increase the likelihood that
the business practices of the GSEs change in ways that have a
material adverse effect on us and that the charters of the GSEs are
changed by new federal legislation. In the past, members of
Congress have introduced several bills intended to change the
business practices of the GSEs and the FHA; however, no legislation
has been enacted. The Administration has indicated that the
conservatorship of the GSEs should end; however, it is unclear
whether and when that would occur and how that would impact us. As
a result of the matters referred to above, it is uncertain what
role the GSEs, FHA and private capital, including private mortgage
insurance, will play in the residential housing finance system in
the future or the impact of any such changes on our business. In
addition, the timing of the impact of any resulting changes on our
business is uncertain. Most meaningful changes would require
Congressional action to implement and it is difficult to estimate
when Congressional action would be final and how long any
associated phase-in period may last.
We may not continue to meet the GSEs' private mortgage
insurer eligibility requirements and our returns may decrease as we
are required to maintain more capital in order to maintain our
eligibility.
We must comply with the PMIERs to be eligible to insure loans
purchased by the GSEs. The PMIERs include financial requirements,
as well as business, quality control and certain transaction
approval requirements. The financial requirements of the PMIERs
require a mortgage insurer's "Available Assets" (generally only the
most liquid assets of an insurer) to equal or exceed its "Minimum
Required Assets" (which are based on an insurer's book and are
calculated from tables of factors with several risk dimensions and
are subject to a floor amount). Based on our interpretation of the
PMIERs, as of December 31, 2017, MGIC's Available Assets
totaled $4.8 billion, or $0.8 billion in excess of its Minimum Required
Assets. MGIC is in compliance with the PMIERs and eligible to
insure loans purchased by the GSEs.
If MGIC ceases to be eligible to insure loans purchased by one
or both of the GSEs, it would significantly reduce the volume of
our new business writings. Factors that may negatively impact
MGIC's ability to continue to comply with the financial
requirements of the PMIERs include the following:
- On December 18, 2017, we received
a summary of proposed changes to the PMIERs that are being
recommended to the FHFA by the GSEs. Once the PMIERs are finalized,
we expect a six-month implementation period before the revised
PMIERs are effective. We expect that effectiveness will not be
earlier than the fourth quarter of 2018.
-
If the GSE-recommended changes are adopted with an effective
date in the fourth quarter of 2018, we expect that at the effective
date, MGIC would continue to have an excess of Available Assets
over Minimum Required Assets, although this excess would be
materially lower than it was at December 31,
2017 under the existing PMIERs, and that MGIC would continue
to be able to pay quarterly dividends to our holding company at the
$50 million quarterly rate at which
they were paid in the fourth quarter of 2017. As a result, we
expect cash at our holding company during the fourth quarter of
2018 would increase over what it was at December 31, 2017.
We have non-disclosure obligations to each of the GSEs and cannot
provide further comment on the specific provisions of the
GSE-recommended changes other than as described above. Until the
GSEs and/or FHFA provide public disclosure of proposed or final
changes to the existing PMIERs, we do not plan to update or correct
any of the disclosure above or provide any additional disclosure
regarding any modifications that may occur in the GSE-recommended
changes to PMIERs.
- Our future operating results may be negatively impacted by the
matters discussed in the rest of these risk factors. Such matters
could decrease our revenues, increase our losses or require the use
of assets, thereby creating a shortfall in Available Assets.
- Should capital be needed by MGIC in the future, capital
contributions from our holding company may not be available due to
competing demands on holding company resources, including for
repayment of debt.
While on an overall basis, the amount of Available Assets MGIC
must hold in order to continue to insure GSE loans increased under
the PMIERs over what state regulation currently requires, our
reinsurance transactions mitigate the negative effect of the PMIERs
on our returns. In this regard, see the first bullet point
above.
The benefit of our net operating loss carryforwards may
become substantially limited.
As of December 31, 2017, we had
approximately $742.1 million of net
operating losses for tax purposes that we can use in certain
circumstances to offset future taxable income and thus reduce our
federal income tax liability. Any unutilized carryforwards are
scheduled to expire at the end of tax years 2032 through 2033. Our
ability to utilize these net operating losses to offset future
taxable income may be significantly limited if we experience an
"ownership change" as defined in Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"). In general, an
ownership change will occur if there is a cumulative change in our
ownership by "5-percent shareholders" (as defined in the Code) that
exceeds 50 percentage points over a rolling three-year period. A
corporation that experiences an ownership change will generally be
subject to an annual limitation on the corporation's subsequent use
of net operating loss carryovers that arose from pre-ownership
change periods and use of losses that are subsequently recognized
with respect to assets that had a built-in-loss on the date of the
ownership change. The amount of the annual limitation generally
equals the fair value of the corporation immediately before the
ownership change multiplied by the long-term tax-exempt interest
rate (subject to certain adjustments). To the extent that the
limitation in a post-ownership-change year is not fully utilized,
the amount of the limitation for the succeeding year will be
increased.
While we have adopted our Amended and Restated Rights Agreement
to minimize the likelihood of transactions in our stock resulting
in an ownership change, future issuances of equity-linked
securities or transactions in our stock and equity-linked
securities that may not be within our control may cause us to
experience an ownership change. If we experience an ownership
change, we may not be able to fully utilize our net operating
losses, resulting in additional income taxes and a reduction in our
shareholders' equity.
We are involved in legal proceedings and are subject to
the risk of additional legal proceedings in the future.
Before paying an insurance claim, we review the loan and
servicing files to determine the appropriateness of the claim
amount. When reviewing the files, we may determine that we have the
right to rescind coverage on the loan. In our SEC reports, we refer
to insurance rescissions and denials of claims collectively as
"rescissions" and variations of that term. In addition, our
insurance policies generally provide that we can reduce or deny a
claim if the servicer did not comply with its obligations under our
insurance policy. We call such reduction of claims "curtailments."
In recent quarters, an immaterial percentage of claims received in
a quarter have been resolved by rescissions. In each of 2016
and 2017, curtailments reduced our average claim paid by
approximately 5.5% and 5.6%, respectively.
Our loss reserving methodology incorporates our estimates of
future rescissions, curtailments, and reversals of rescissions and
curtailments. A variance between ultimate actual rescission,
curtailment and reversal rates and our estimates, as a result of
the outcome of litigation, settlements or other factors, could
materially affect our losses.
When the insured disputes our right to rescind coverage or
curtail claims, we generally engage in discussions in an attempt to
settle the dispute. If we are unable to reach a settlement,
the outcome of a dispute ultimately would be determined by legal
proceedings.
Under ASC 450-20, until a liability associated with settlement
discussions or legal proceedings becomes probable and can be
reasonably estimated, we consider our claim payment or rescission
resolved for financial reporting purposes and do not accrue an
estimated loss. Where we have determined that a loss is probable
and can be reasonably estimated, we have recorded our best estimate
of our probable loss. If we are not able to implement settlements
we consider probable, we intend to defend MGIC vigorously against
any related legal proceedings.
In addition to matters for which we have recorded a probable
loss, we are involved in other discussions and/or proceedings with
insureds with respect to our claims paying practices. Although it
is reasonably possible that when these matters are resolved we will
not prevail in all cases, we are unable to make a reasonable
estimate or range of estimates of the potential liability. We
estimate the maximum exposure associated with matters where a loss
is reasonably possible to be approximately $285 million, although we believe (but can give
no assurance that) we will ultimately resolve these matters for
significantly less than this amount. This estimate of our maximum
exposure does not include interest or consequential or exemplary
damages.
Mortgage insurers, including MGIC, have been involved in
litigation and regulatory actions related to alleged violations of
the anti-referral fee provisions of the Real Estate Settlement
Procedures Act, which is commonly known as RESPA, and the notice
provisions of the Fair Credit Reporting Act, which is commonly
known as FCRA. While these proceedings in the aggregate have
not resulted in material liability for MGIC, there can be no
assurance that the outcome of future proceedings, if any, under
these laws would not have a material adverse affect on us. In
addition, various regulators, including the CFPB, state insurance
commissioners and state attorneys general may bring other actions
seeking various forms of relief in connection with alleged
violations of RESPA. The insurance law provisions of many states
prohibit paying for the referral of insurance business and provide
various mechanisms to enforce this prohibition. While we believe
our practices are in conformity with applicable laws and
regulations, it is not possible to predict the eventual scope,
duration or outcome of any such reviews or investigations nor is it
possible to predict their effect on us or the mortgage insurance
industry.
In addition to the matters described above, we are involved in
other legal proceedings in the ordinary course of business. In our
opinion, based on the facts known at this time, the ultimate
resolution of these ordinary course legal proceedings will not have
a material adverse effect on our financial position or results of
operations.
We are subject to comprehensive regulation and other
requirements, which we may fail to satisfy.
We are subject to comprehensive, detailed regulation by state
insurance departments. These regulations are principally designed
for the protection of our insured policyholders, rather than for
the benefit of investors. Although their scope varies, state
insurance laws generally grant broad supervisory powers to agencies
or officials to examine insurance companies and enforce rules or
exercise discretion affecting almost every significant aspect of
the insurance business. State insurance regulatory authorities
could take actions, including changes in capital requirements, that
could have a material adverse effect on us. For more information
about state capital requirements, see our risk factor titled
"State capital requirements may prevent us from continuing to
write new insurance on an uninterrupted basis." To the extent
that we are construed to make independent credit decisions in
connection with our contract underwriting activities, we also could
be subject to increased regulatory requirements under the Equal
Credit Opportunity Act, commonly known as ECOA, the FCRA, and other
laws. For more details about the various ways in which our
subsidiaries are regulated, see "Regulation" in Item 1 of our
Annual Report on Form 10-K filed with the SEC on February 21, 2017. In addition to regulation by
state insurance regulators, the CFPB may issue additional rules or
regulations, which may materially affect our business.
In December 2013, the U.S.
Treasury Department's Federal Insurance Office released a report
that calls for federal standards and oversight for mortgage
insurers to be developed and implemented. It is uncertain if and
when the standards and oversight will become effective and what
form they will take.
Resolution of our dispute with the Internal Revenue
Service could adversely affect us.
The Internal Revenue Service ("IRS") completed examinations of
our federal income tax returns for the years 2000 through 2007 and
issued proposed assessments for taxes, interest and penalties
related to our treatment of the flow-through income and loss from
an investment in a portfolio of residual interests of Real Estate
Mortgage Investment Conduits ("REMICs"). The IRS indicated that it
did not believe that, for various reasons, we had established
sufficient tax basis in the REMIC residual interests to deduct the
losses from taxable income. We appealed these assessments within
the IRS and in August 2010, we
reached a tentative settlement agreement with the IRS which was not
finalized.
In 2014, we received Notices of Deficiency (commonly referred to
as "90 day letters") covering the 2000-2007 tax years. The Notices
of Deficiency reflect taxes and penalties related to the REMIC
matters of $197.5 million and at
December 31, 2017, there would also
be interest related to these matters of approximately $205.0 million. In 2007, we made a payment of
$65.2 million to the United States
Department of the Treasury which will reduce any amounts we would
ultimately owe. The Notices of Deficiency also reflect additional
amounts due of $261.4 million, which
are primarily associated with the disallowance of the carryback of
the 2009 net operating loss to the 2004-2007 tax years. We believe
the IRS included the carryback adjustments as a precaution to keep
open the statute of limitations on collection of the tax that was
refunded when this loss was carried back, and not because the IRS
actually intends to disallow the carryback permanently. Depending
on the outcome of this matter, additional state income taxes and
state interest may become due when a final resolution is reached.
As of December 31, 2017, those state
taxes and interest would approximate $85.8
million. In addition, there could also be state tax
penalties. Our total amount of unrecognized tax benefits as of
December 31, 2017 is $142.8 million, which represents the tax benefits
generated by the REMIC portfolio included in our tax returns that
we have not taken benefit for in our financial statements,
including any related interest.
We filed a petition with the U.S. Tax Court contesting most of
the IRS' proposed adjustments reflected in the Notices of
Deficiency and the IRS filed an answer to our petition which
continued to assert their claim. The case has twice been scheduled
for trial and in each instance, the parties jointly filed, and the
U.S. Tax Court approved (most recently in February 2016), motions for continuance to
postpone the trial date. Also in February
2016, the U.S. Tax Court approved a joint motion to
consolidate for trial, briefing, and opinion, our case with similar
cases of Radian Group, Inc., as successor to Enhance Financial
Services Group, Inc., et al. The parties have reached agreement on
all issues in the case and in the fourth quarter of 2017, the IRS
submitted documentation reflecting the terms of the agreement to
the Joint Committee on Taxation ("JCT") for its review, which must
be performed before a settlement can be completed. There is no
assurance that a settlement will be completed. Based on information
that we currently have regarding the status of our ongoing dispute,
we recorded a provision for additional taxes and interest of
$29.0 million in 2017.
Should a settlement not be completed, ongoing litigation to
resolve our dispute with the IRS could be lengthy and costly in
terms of legal fees and related expenses. We would need to make
further adjustments, which could be material, to our tax provision
and liabilities if our view of the probability of success in this
matter changes, and the ultimate resolution of this matter could
have a material negative impact on our effective tax rate, results
of operations, cash flows, available assets and statutory capital.
In this regard, see our risk factors titled "We may not continue
to meet the GSEs' private mortgage insurer eligibility requirements
and our returns may decrease as we are required to maintain more
capital in order to maintain our eligibility" and "State capital
requirements may prevent us from continuing to write new insurance
on an uninterrupted basis."
If the models used in our businesses are inaccurate, it
could have a material adverse impact on our business, results of
operations and financial condition.
We employ proprietary and third party models to project returns,
price products, calculate reserves, generate projections used to
estimate future pre-tax income and to evaluate loss recognition
testing, evaluate risk, determine internal capital requirements,
perform stress testing, and for other uses. These models rely on
estimates and projections that are inherently uncertain and may not
operate as intended. In addition, from time to time we seek to
improve certain models, and the conversion process may result in
material changes to assumptions, including those about returns and
financial results. The models we employ are complex, which
increases our risk of error in their design, implementation or use.
Also, the associated input data, assumptions and calculations may
not be correct, and the controls we have in place to mitigate that
risk may not be effective in all cases. The risks related to our
models may increase when we change assumptions and/or
methodologies, or when we add or change modeling platforms. We have
enhanced, and we intend to continue to enhance, our modeling
capabilities. Moreover, we may use information we receive through
enhancements to refine or otherwise change existing assumptions
and/or methodologies.
Because we establish loss reserves only upon a loan
default rather than based on estimates of our ultimate losses on
risk in force, losses may have a disproportionate adverse effect on
our earnings in certain periods.
In accordance with accounting principles generally accepted in
the United States, commonly
referred to as GAAP, we establish reserves for insurance losses and
loss adjustment expenses only when notices of default on insured
mortgage loans are received and for loans we estimate are in
default but for which notices of default have not yet been reported
to us by the servicers (this is often referred to as "IBNR").
Because our reserving method does not take account of losses that
could occur from loans that are not delinquent, such losses are not
reflected in our financial statements, except in the case where a
premium deficiency exists. As a result, future losses on loans that
are not currently delinquent may have a material impact on future
results as such losses emerge.
Recent hurricanes may impact our incurred losses, the
amount and timing of paid claims, our inventory of notices of
default and our Minimum Required Assets under PMIERs.
The number of borrowers missing their mortgage payments in the
areas affected by recent hurricanes in Texas, Florida and Puerto
Rico has increased. Despite the associated increase in our
inventory of notices of default, based on our analysis and past
experience, we do not expect the recent hurricane activity to
result in a material increase in our incurred losses or paid
claims. However, the following factors could cause our actual
results to differ from our expectation in the forward looking
statement in the preceding sentence:
- Third party reports that indicate the extent of flooding in the
hurricane-affected areas may be understated.
- Home values in hurricane-affected areas may decrease at the
time claims are filed from their current levels thereby adversely
affecting our ability to mitigate loss.
- Hurricane-affected areas may experience deteriorating economic
conditions resulting in more borrowers defaulting on their loans in
the future (or failing to cure existing defaults) than we currently
expect.
- If an insured contests our claim denial or curtailment, there
can be no assurance we will prevail. We describe how claims under
our policy are affected by damage to the borrower's home in our
Current Report on Form 8-K filed with the SEC on September 14, 2017.
Due to the suspension of certain foreclosures by the GSEs, our
receipt of claims associated with foreclosed mortgages in the
hurricane-affected areas may be delayed.
The PMIERs require us to maintain significantly more "Minimum
Required Assets" for delinquent loans than for performing loans. An
increase in default notices may result in an increase in "Minimum
Required Assets" and a decrease in the level of our excess
"Available Assets" which is discussed in our risk factor titled
"We may not continue to meet the GSEs' private mortgage insurer
eligibility requirements and our returns may decrease as we are
required to maintain more capital in order to maintain our
eligibility."
Because loss reserve estimates are subject to
uncertainties, paid claims may be substantially different than our
loss reserves.
When we establish reserves, we estimate the ultimate loss on
delinquent loans using estimated claim rates and claim amounts. The
estimated claim rates and claim amounts represent our best
estimates of what we will actually pay on the loans in default as
of the reserve date and incorporate anticipated mitigation from
rescissions and curtailments. The establishment of loss reserves is
subject to inherent uncertainty and requires judgment by
management. The actual amount of the claim payments may be
substantially different than our loss reserve estimates. Our
estimates could be affected by several factors, including a change
in regional or national economic conditions, and a change in the
length of time loans are delinquent before claims are received. The
change in conditions may include changes in unemployment, affecting
borrowers' income and thus their ability to make mortgage payments,
and changes in housing values, which may affect borrower
willingness to continue to make mortgage payments when the value of
the home is below the mortgage balance. Changes to our estimates
could have a material impact on our future results, even in a
stable economic environment. In addition, historically, losses
incurred have followed a seasonal trend in which the second half of
the year has weaker credit performance than the first half, with
higher new default notice activity and a lower cure rate.
We rely on our management team and our business could be
harmed if we are unable to retain qualified personnel or
successfully develop and/or recruit their replacements.
Our success depends, in part, on the skills, working
relationships and continued services of our management team and
other key personnel. The unexpected departure of key personnel
could adversely affect the conduct of our business. In such event,
we would be required to obtain other personnel to manage and
operate our business. In addition, we will be required to replace
the knowledge and expertise of our aging workforce as our workers
retire. In either case, there can be no assurance that we would be
able to develop or recruit suitable replacements for the departing
individuals; that replacements could be hired, if necessary, on
terms that are favorable to us; or that we can successfully
transition such replacements in a timely manner. We currently have
not entered into any employment agreements with our officers or key
personnel. Volatility or lack of performance in our stock price may
affect our ability to retain our key personnel or attract
replacements should key personnel depart. Without a properly
skilled and experienced workforce, our costs, including
productivity costs and costs to replace employees may increase, and
this could negatively impact our earnings.
If the volume of low down payment home mortgage
originations declines, the amount of insurance that we write could
decline.
The factors that may affect the volume of low down payment
mortgage originations include:
- restrictions on mortgage credit due to more stringent
underwriting standards, liquidity issues or risk-retention and/or
capital requirements affecting lenders,
- the level of home mortgage interest rates,
- the health of the domestic economy as well as conditions in
regional and local economies and the level of consumer
confidence,
- housing affordability,
- new and existing housing availability,
- the rate of household formation, which is influenced, in part,
by population and immigration trends,
- the rate of home price appreciation, which in times of heavy
refinancing can affect whether refinanced loans have loan-to-value
ratios that require private mortgage insurance, and
- government housing policy encouraging loans to first-time
homebuyers.
A decline in the volume of low down payment home mortgage
originations could decrease demand for mortgage insurance and
decrease our new insurance written. For other factors that could
decrease the demand for mortgage insurance, see our risk factor
titled "The amount of insurance we write could be adversely
affected if lenders and investors select alternatives to private
mortgage insurance."
State capital requirements may prevent us from continuing
to write new insurance on an uninterrupted basis.
The insurance laws of 16 jurisdictions, including Wisconsin, MGIC's domiciliary state, require a
mortgage insurer to maintain a minimum amount of statutory capital
relative to its risk in force (or a similar measure) in order for
the mortgage insurer to continue to write new business. We refer to
these requirements as the "State Capital Requirements." While they
vary among jurisdictions, the most common State Capital
Requirements allow for a maximum risk-to-capital ratio of 25 to 1.
A risk-to-capital ratio will increase if (i) the percentage
decrease in capital exceeds the percentage decrease in insured
risk, or (ii) the percentage increase in capital is less than the
percentage increase in insured risk. Wisconsin does not regulate capital by using a
risk-to-capital measure but instead requires a minimum policyholder
position ("MPP"). The "policyholder position" of a mortgage insurer
is its net worth or surplus, contingency reserve and a portion of
the reserves for unearned premiums.
At December 31, 2017, MGIC's
risk-to-capital ratio was 9.5 to 1, below the maximum allowed by
the jurisdictions with State Capital Requirements, and its
policyholder position was $2.1
billion above the required MPP of $1.2 billion. In calculating our risk-to-capital
ratio and MPP, we are allowed full credit for the risk ceded under
our reinsurance transactions with a group of unaffiliated
reinsurers. It is possible that under the revised State Capital
Requirements discussed below, MGIC will not be allowed full credit
for the risk ceded to the reinsurers. If MGIC is not allowed an
agreed level of credit under either the State Capital Requirements
or the PMIERs, MGIC may terminate the reinsurance transactions,
without penalty. At this time, we expect MGIC to continue to comply
with the current State Capital Requirements; however, you should
read the rest of these risk factors for information about matters
that could negatively affect such compliance.
At December 31, 2017, the
risk-to-capital ratio of our combined insurance operations (which
includes a reinsurance affiliate) was 10.5 to 1. Reinsurance
transactions with our affiliate permit MGIC to write insurance with
a higher coverage percentage than it could on its own under certain
state-specific requirements. A higher risk-to-capital ratio on a
combined basis may indicate that, in order for MGIC to continue to
utilize reinsurance arrangements with its reinsurance affiliate,
additional capital contributions to the affiliate could be
needed.
The NAIC plans to revise the minimum capital and surplus
requirements for mortgage insurers that are provided for in its
Mortgage Guaranty Insurance Model Act. In May 2016, a working group of state regulators
released an exposure draft of a risk-based capital framework to
establish capital requirements for mortgage insurers, although no
date has been established by which the NAIC must propose revisions
to the capital requirements and certain items have not yet been
completely addressed by the framework, including the treatment of
ceded risk, minimum capital floors, and action level triggers.
Currently we believe that the PMIERs contain the more restrictive
capital requirements in most circumstances.
While MGIC currently meets the State Capital Requirements of
Wisconsin and all other
jurisdictions, it could be prevented from writing new business in
the future in all jurisdictions if it fails to meet the State
Capital Requirements of Wisconsin,
or it could be prevented from writing new business in a particular
jurisdiction if it fails to meet the State Capital Requirements of
that jurisdiction, and in each case MGIC does not obtain a waiver
of such requirements. It is possible that regulatory action by one
or more jurisdictions, including those that do not have specific
State Capital Requirements, may prevent MGIC from continuing to
write new insurance in such jurisdictions. If we are unable to
write business in all jurisdictions, lenders may be unwilling to
procure insurance from us anywhere. In addition, a lender's
assessment of the future ability of our insurance operations to
meet the State Capital Requirements or the PMIERs may affect its
willingness to procure insurance from us. In this regard, see our
risk factor titled "Competition or changes in our relationships
with our customers could reduce our revenues, reduce our premium
yields and/or increase our losses." A possible future failure
by MGIC to meet the State Capital Requirements or the PMIERs will
not necessarily mean that MGIC lacks sufficient resources to pay
claims on its insurance liabilities. While we believe MGIC has
sufficient claims paying resources to meet its claim obligations on
its insurance in force on a timely basis, you should read the rest
of these risk factors for information about matters that could
negatively affect MGIC's claims paying resources.
Downturns in the domestic economy or declines in the value
of borrowers' homes from their value at the time their loans closed
may result in more homeowners defaulting and our losses increasing,
with a corresponding decrease in our returns.
Losses result from events that reduce a borrower's ability or
willingness to continue to make mortgage payments, such as
unemployment, health issues, family status, and whether the home of
a borrower who defaults on his mortgage can be sold for an amount
that will cover unpaid principal and interest and the expenses of
the sale. In general, favorable economic conditions reduce the
likelihood that borrowers will lack sufficient income to pay their
mortgages and also favorably affect the value of homes, thereby
reducing and in some cases even eliminating a loss from a mortgage
default. A deterioration in economic conditions, including an
increase in unemployment, generally increases the likelihood that
borrowers will not have sufficient income to pay their mortgages
and can also adversely affect housing values, which in turn can
influence the willingness of borrowers with sufficient resources to
make mortgage payments to do so when the mortgage balance exceeds
the value of the home. Housing values may decline even absent a
deterioration in economic conditions due to declines in demand for
homes, which in turn may result from changes in buyers' perceptions
of the potential for future appreciation, restrictions on and the
cost of mortgage credit due to more stringent underwriting
standards, higher interest rates generally, changes to the
deductibility of mortgage interest or mortgage insurance premiums
for income tax purposes, decreases in the rate of household
formations, or other factors. Recently enacted tax legislation
could have some negative impact on housing values especially on
higher priced homes, but we cannot predict the magnitude of the
impact, if any, on the values of the homes we insure. Changes in
housing values and unemployment levels are inherently difficult to
forecast given the uncertainty in the current market environment,
including uncertainty about the effect of actions the federal
government has taken and may take with respect to tax policies,
mortgage finance programs and policies, and housing finance
reform.
The mix of business we write affects our Minimum Required
Assets under the PMIERs, our premium yields and the likelihood of
losses occurring.
The Minimum Required Assets under the PMIERs are, in part, a
function of the direct risk-in-force and the risk profile of the
loans we insure, considering loan-to-value ratio, credit score,
vintage, Home Affordable Refinance Program ("HARP") status and
delinquency status; and whether the loans were insured under
lender-paid mortgage insurance policies or other policies that are
not subject to automatic termination consistent with the Homeowners
Protection Act requirements for borrower paid mortgage insurance.
Therefore, if our direct risk-in-force increases through increases
in new insurance written, or if our mix of business changes to
include loans with higher loan-to-value ratios or lower FICO
scores, for example, or if we insure a higher percentage of loans
under lender-paid mortgage insurance policies, all other things
equal, we will be required to hold more Available Assets in order
to maintain GSE eligibility.
The minimum capital required by the risk-based capital framework
contained in the exposure draft released by the NAIC in
May 2016 would be, in part, a
function of certain loan and economic factors, including property
location, loan-to-value ratio and credit score; general
underwriting quality in the market at the time of loan origination;
the age of the loan; and the premium rate we charge. Depending on
the provisions of the capital requirements when they are released
in final form and become effective, our mix of business may affect
the minimum capital we are required to hold under the new
framework.
Beginning in 2014, we have increased the percentage of our
business from lender-paid single premium policies. Depending on the
actual life of a single premium policy and its premium rate
relative to that of a monthly premium policy, a single premium
policy may generate more or less premium than a monthly premium
policy over its life.
We have in place quota share reinsurance transactions with a
group of unaffiliated reinsurers that cover most of our insurance
written from 2013 through 2017, and a portion of our insurance
written prior to 2013. Although the transactions reduce our
premiums, they have a lesser impact on our overall results, as
losses ceded under the transactions reduce our losses incurred and
the ceding commissions we receive reduce our underwriting expenses.
The net cost of reinsurance, with respect to a covered loan, is 6%
(but can be lower if losses are materially higher than we expect).
This cost is derived by dividing the reduction in our pre-tax net
income from such loan with reinsurance by our direct (that is,
without reinsurance) premiums from such loan. Although the net cost
of the reinsurance is generally constant at 6%, the effect of the
reinsurance on the various components of pre-tax income will vary
from period to period, depending on the level of ceded losses. We
expect that in the first quarter of 2018, we will enter into an
agreement covering most of our new insurance written in 2018, on
terms no less favorable than our existing transactions. GSE
approval of those transactions is subject to several conditions and
the transactions will be reviewed under the PMIERs at least
annually by the GSEs. We may not receive full credit under the
PMIERs for the risk ceded under our quota share reinsurance
transactions.
In addition to the effect of reinsurance on our premiums, we
expect a modest decline in our premium yield resulting from the
premium rates themselves: the books we wrote before 2009, which
have a higher average premium rate than subsequent books, are
expected to continue to decline as a percentage of the insurance in
force; and the average premium rate on these books is also expected
to decline as the premium rates reset to lower levels at the time
the loans reach the ten-year anniversary of their initial coverage
date. However, for loans that have utilized HARP, the initial
ten-year period was reset to begin as of the date of the HARP
transaction. As of December 31, 2017,
approximately 1% of our total primary insurance in force was
written in 2008, has not been refinanced under HARP and is subject
to a reset after ten years.
The circumstances in which we are entitled to rescind coverage
have narrowed for insurance we have written in recent years. During
the second quarter of 2012, we began writing a portion of our new
insurance under an endorsement to our then existing master policy
(the "Gold Cert Endorsement"), which limited our ability to rescind
coverage compared to that master policy. To comply with
requirements of the GSEs, we introduced our current master policy
in 2014. Our rescission rights under our current master policy are
comparable to those under our previous master policy, as modified
by the Gold Cert Endorsement, but may be further narrowed if the
GSEs permit modifications to them. Our current master policy is
filed as Exhibit 99.19 to our quarterly report on Form 10-Q for the
quarter ended September 30, 2014
(filed with the SEC on November 7,
2014). All of our primary new insurance on loans with
mortgage insurance application dates on or after October 1, 2014, was written under our current
master policy. As of December 31,
2017, approximately 74% of our flow, primary insurance in
force was written under our Gold Cert Endorsement or our current
master policy.
From time to time, in response to market conditions, we change
the types of loans that we insure and the requirements under which
we insure them. We also change our underwriting guidelines, in part
through aligning some of them with Fannie Mae and Freddie Mac for
loans that receive and are processed in accordance with certain
approval recommendations from a GSE automated underwriting system.
As a result of changes to our underwriting guidelines and
requirements (including those related to debt to income levels
("DTIs"), credit scores, and the manner in which income levels and
property values are determined) and other factors, our business
written beginning in the second half of 2013 is expected to have a
somewhat higher claim incidence than business written in 2009
through the first half of 2013, but materially below that on
business written in 2005-2008. However, we believe this business
presents an acceptable level of risk. The number of loans we
insured with DTIs greater than 45% increased in the second half of
2017 after the requirements of a GSE automated underwriting system
were made more liberal; however, effective for loans we insure
beginning in March 2018, we increased
the credit score required in connection with such loans. Our
underwriting requirements are available on our website at
http://www.mgic.com/underwriting/index.html. We monitor the
competitive landscape and will make adjustments to our pricing and
underwriting guidelines as warranted. We also make exceptions to
our underwriting requirements on a loan-by-loan basis and for
certain customer programs. Together, the number of loans for which
exceptions were made, which in total are expected to have a
somewhat higher claim incidence than loans that meet our
guidelines, accounted for fewer than 2% of the loans we insured in
each of 2016 and 2017.
Even when housing values are stable or rising, mortgages with
certain characteristics have higher probabilities of claims. These
characteristics include loans with higher loan-to-value ratios,
lower FICO scores, limited underwriting, including limited borrower
documentation, or higher DTIs, as well as loans having combinations
of higher risk factors. As of December 31,
2017, approximately 13.8% of our primary risk in force
consisted of loans with loan-to-value ratios greater than 95%, 3.0%
had FICO scores below 620, and 2.8% had limited underwriting,
including limited borrower documentation, each attribute as
determined at the time of loan origination. A material number of
these loans were originated in 2005 - 2007 or the first half of
2008. For information about our classification of loans by FICO
score and documentation, see footnotes (6) and (7) to the
Characteristics of Primary Risk in Force table under "Business -
Our Products and Services" in Item 1 of our Annual Report on
Form 10-K filed with the SEC on February 21,
2017.
As of December 31, 2017,
approximately 1% of our primary risk in force consisted of
adjustable rate mortgages in which the initial interest rate may be
adjusted during the five years after the mortgage closing ("ARMs").
We classify as fixed rate loans adjustable rate mortgages in which
the initial interest rate is fixed during the five years after the
mortgage closing. If interest rates should rise between the time of
origination of such loans and when their interest rates may be
reset, claims on ARMs and adjustable rate mortgages whose interest
rates may only be adjusted after five years would be substantially
higher than for fixed rate loans. In addition, we have insured
"interest-only" loans, which may also be ARMs, and loans with
negative amortization features, such as pay option ARMs. We believe
claim rates on these loans will be substantially higher than on
loans without scheduled payment increases that are made to
borrowers of comparable credit quality.
If state or federal regulations or statutes are changed in ways
that ease mortgage lending standards and/or requirements, or if
lenders seek ways to replace business in times of lower mortgage
originations, it is possible that more mortgage loans could be
originated with higher risk characteristics than are currently
being originated such as loans with lower FICO scores and higher
DTIs. Lenders could pressure mortgage insurers to insure such
loans. Although we attempt to incorporate these higher expected
claim rates into our underwriting and pricing models, there can be
no assurance that the premiums earned and the associated investment
income will be adequate to compensate for actual losses even under
our current underwriting requirements. We do, however, believe that
our insurance written beginning in the second half of 2008 will
generate underwriting profits.
The premiums we charge may not be adequate to compensate
us for our liabilities for losses and as a result any inadequacy
could materially affect our financial condition and results of
operations.
We set premiums at the time a policy is issued based on our
expectations regarding likely performance of the insured risks over
the long-term. Our premiums are subject to approval by state
regulatory agencies, which can delay or limit our ability to
increase our premiums. Generally, we cannot cancel mortgage
insurance coverage or adjust renewal premiums during the life of a
mortgage insurance policy. As a result, higher than anticipated
claims generally cannot be offset by premium increases on policies
in force or mitigated by our non-renewal or cancellation of
insurance coverage. The premiums we charge, and the associated
investment income, may not be adequate to compensate us for the
risks and costs associated with the insurance coverage provided to
customers. An increase in the number or size of claims, compared to
what we anticipate, could adversely affect our results of
operations or financial condition. Our premium rates are also based
in part on the amount of capital we are required to hold against
the insured risk. If the amount of capital we are required to hold
increases from the amount we were required to hold when a policy
was written, we cannot adjust premiums to compensate for this and
our returns may be lower than we assumed.
The losses we have incurred on our 2005-2008 books have exceeded
our premiums from those books. Our current expectation is that the
incurred losses from those books, although declining, will continue
to generate a material portion of our total incurred losses for a
number of years. The ultimate amount of these losses will depend in
part on general economic conditions, including unemployment, and
the direction of home prices.
We are susceptible to disruptions in the servicing of
mortgage loans that we insure.
We depend on reliable, consistent third-party servicing of the
loans that we insure. Over the last several years, the mortgage
loan servicing industry has experienced consolidation and an
increase in the number of specialty servicers servicing delinquent
loans. The resulting change in the composition of servicers could
lead to disruptions in the servicing of mortgage loans covered by
our insurance policies. Further changes in the servicing industry
resulting in the transfer of servicing could cause a disruption in
the servicing of delinquent loans which could reduce servicers'
ability to undertake mitigation efforts that could help limit our
losses. Future housing market conditions could lead to additional
increases in delinquencies and transfers of servicing.
Changes in interest rates, house prices or mortgage
insurance cancellation requirements may change the length of time
that our policies remain in force.
The premium from a single premium policy is collected upfront
and generally earned over the estimated life of the policy. In
contrast, premiums from a monthly premium policy are received and
earned each month over the life of the policy. In each year, most
of our premiums earned are from insurance that has been written in
prior years. As a result, the length of time insurance remains in
force, which is generally measured by persistency (the percentage
of our insurance remaining in force from one year prior), is a
significant determinant of our revenues. Future premiums on our
monthly premium policies in force represent a material portion of
our claims paying resources and a low persistency rate will reduce
those future premiums. In contrast, a higher than expected
persistency rate will decrease the profitability from single
premium policies because they will remain in force longer than was
estimated when the policies were written.
The monthly premium policies for the substantial majority of
loans we insured provides that, for the first ten years of the
policy, the premium is determined by the product of the premium
rate and the initial loan balance; thereafter, a lower premium rate
is applied to the initial loan balance. The initial ten-year period
is reset when the loan is refinanced under HARP. The premiums on
many of the policies in our 2007 book that were not refinanced
under HARP reset in 2017. As of December 31,
2017, approximately 1% of our total primary insurance in
force was written in 2008, has not been refinanced under HARP, and
is subject to a rate reset after ten years.
Our persistency rate was 80.1% at December 31, 2017, 76.9% at December 31, 2016 and 79.7% at December 31, 2015. Since 2000, our year-end
persistency ranged from a high of 84.7% at December 31, 2009 to a low of 47.1% at
December 31, 2003.
Our persistency rate is primarily affected by the level of
current mortgage interest rates compared to the mortgage coupon
rates on our insurance in force, which affects the vulnerability of
the insurance in force to refinancing. Our persistency rate is also
affected by the mortgage insurance cancellation policies of
mortgage investors along with the current value of the homes
underlying the mortgages in the insurance in force.
Your ownership in our company may be diluted by additional
capital that we raise or if the holders of our outstanding
convertible debt convert that debt into shares of our common
stock.
As noted above under our risk factor titled "We may not
continue to meet the GSEs' private mortgage insurer eligibility
requirements and our returns may decrease as we are required to
maintain more capital in order to maintain our eligibility,"
although we are currently in compliance with the requirements of
the PMIERs, there can be no assurance that we would not seek to
issue non-dilutive debt capital or to raise additional equity
capital to manage our capital position under the PMIERs or for
other purposes. Any future issuance of equity securities may dilute
your ownership interest in our company. In addition, the market
price of our common stock could decline as a result of sales of a
large number of shares or similar securities in the market or the
perception that such sales could occur.
At December 31, 2017, we had
outstanding $390 million principal
amount of 9% Convertible Junior Subordinated Debentures due in 2063
("9% Debentures") (of which approximately $133 million was purchased by and is held by
MGIC, and is eliminated on the consolidated balance sheet). The
principal amount of the 9% Debentures is currently convertible, at
the holder's option, at an initial conversion rate, which is
subject to adjustment, of 74.0741 common shares per $1,000 principal amount of debentures. This
represents an initial conversion price of approximately
$13.50 per share. We may redeem the
9% Debentures in whole or in part from time to time, at our option,
at a redemption price equal to 100% of the principal amount of the
9% Debentures being redeemed, plus any accrued and unpaid interest,
if the closing sale price of our common stock exceeds 130% of the
then prevailing conversion price of the 9% Debentures for at least
20 of the 30 trading days preceding notice of the redemption. 130%
of such conversion price is $17.55.
We have the right, and may elect, to defer interest payable
under the debentures in the future. If a holder elects to convert
its debentures, the interest that has been deferred on the
debentures being converted is also convertible into shares of our
common stock. The conversion rate for such deferred interest is
based on the average price that our shares traded at during a 5-day
period immediately prior to the election to convert the associated
debentures. We may elect to pay cash for some or all of the shares
issuable upon a conversion of the debentures.
For a discussion of the dilutive effects of our convertible
securities on our earnings per share, see Note 6 – "Earnings
Per Share" to our consolidated financial statements in our
Quarterly Report on Form 10-Q filed with the SEC on November 7, 2017. We currently have no plans to
repurchase common stock but regularly consider appropriate uses for
resources of our holding company. In addition, we have in the past,
and may in the future, purchase our debt securities.
Our holding company debt obligations materially exceed our
holding company cash and investments.
At December 31, 2017, we had
approximately $216 million in cash
and investments at our holding company and our holding company's
debt obligations were $815 million in
aggregate principal amount, consisting of $425 million of 5.75% Senior Notes due in 2023
("5.75% Notes") and $390 million of
9% Debentures (of which approximately $133
million was purchased by and is held by MGIC, and is
eliminated on the consolidated balance sheet). Annual debt service
on the 5.75% Notes and 9% Debentures outstanding as of December 31, 2017, is approximately $60 million (of which approximately $12 million will be paid to MGIC and will be
eliminated on the consolidated statement of operations).
The 5.75% Senior Notes and 9% Debentures are obligations of our
holding company, MGIC Investment Corporation, and not of its
subsidiaries. The payment of dividends from our insurance
subsidiaries which, other than investment income and raising
capital in the public markets, is the principal source of our
holding company cash inflow, is restricted by insurance regulation.
MGIC is the principal source of dividend-paying capacity. In
2017, MGIC paid a total of $140
million in dividends to our holding company. We expect MGIC
to continue to pay quarterly dividends. We ask the OCI not to
object before MGIC pays dividends. If any additional capital
contributions to our subsidiaries were required, such contributions
would decrease our holding company cash and investments. As
described in our Current Report on Form 8-K filed on February 11, 2016, MGIC borrowed $155 million from the Federal Home Loan Bank of
Chicago. This is an obligation of
MGIC and not of our holding company.
We could be adversely affected if personal information on
consumers that we maintain is improperly disclosed and our
information technology systems may become outdated and we may not
be able to make timely modifications to support our products and
services.
We rely on the efficient and uninterrupted operation of complex
information technology systems. All information technology systems
are potentially vulnerable to damage or interruption from a variety
of sources, including through the actions of third parties. Due to
our reliance on our information technology systems, their damage or
interruption could severely disrupt our operations, which could
have a material adverse effect on our business, business prospects
and results of operations. As part of our business, we maintain
large amounts of personal information on consumers. While we
believe we have appropriate information security policies and
systems to prevent unauthorized disclosure, there can be no
assurance that unauthorized disclosure, either through the actions
of third parties or employees, will not occur. Unauthorized
disclosure could adversely affect our reputation, result in a loss
of business and expose us to material claims for damages.
In addition, we are in the process of upgrading certain of our
information systems that have been in place for a number of years.
The implementation of these technological improvements is complex,
expensive and time consuming. If we fail to timely and successfully
implement the new technology systems, or if the systems do not
operate as expected, it could have an adverse impact on our
business, business prospects and results of operations.
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SOURCE MGIC Investment Corporation